Top Forex Market Movers of the Week (Apr. 3-7, 2017)

The forex trading week has come and gone. Time to take a look at what was driving forex price action. Were you able to profit from any of this week’s top movers?

The yen triumphed over all this week, with the Greenback coming in second place. The Aussie, meanwhile, get beaten to a pulp. So, what was driving price action on these currencies? And how did the other currencies fare? Read on to find out!

The Japanese Yen

USD/JPY: 1-Hour Forex Chart

The yen was the one currency to rule them all this week. And if you guessed that the yen was tracking bond yields again for the most part, then you’re right. Although there were also signs that the yen was decoupling from bond yields, as you can see below and as we’ll discuss shortly.

USD/JPY (Red) vs. U.S. 10Y Bond Yields (Blue)

The yen hit the ground running this week, thanks to plunging bond yields on Monday, which was attributed by market analysts to safe-haven demand for bonds after the subway explosion in Russia, as well as Q2 positioning by hedge funds and other large players and overall demand for bonds due to lingering worries over Trump’s ability to push through with his fiscal stimulus plans.

Bond yields later steadied before rising on Tuesday, thanks to bond-selling and/or profit-taking as demand for bonds were increasingly seen as being overdone, market analysts say. The yen slightly decoupled, though, since yen continued to broadly gain strength even as bond yields steadied. And this was very likely due to risk aversion in Asia and in Europe at the time, thanks to lingering jitters after the subway bombing in Russia and skittishness ahead of Trump’s meeting with Chinese President Xi Jinping. However, the yen did ultimately wave the white flag of defeat when bond yields rose later during the day.

Risk aversion persisted on Wednesday, but bond yields continued to rise ahead of the release of the FOMC meeting minutes. And when the minutes did get released, bond yields slumped. And market analysts blamed this on profit-taking by disappointed market players who were expecting the minutes to be a bit more hawkish. We’ll discuss more about the FOMC meeting minutes later when we get to the Greenback.

Bond yields steadied on Thursday, but the yen decoupled from bond yields again, since the yen broadly weakened, very likely because of signs of risk appetite in the European and U.S. equities market.

Fortunately for the yen, word got around that Trump ordered a missile barrage on Syria come Friday, which naturally sent safe-haven flows towards both bonds and the yen. Unfortunately for the yen, bond yields recovered ahead of the NFP report But as it turns out, the NFP report was a big miss, so bond yields got sapped. Bond yields quickly found support, though, and even surged higher. And the surge in bond yields was linked by market analysts to New York Fed President Dudley’s comment that changes to the Fed’s balance sheet policy would only prompt “little pause” in the Fed’s hiking trajectory.

Overall, a pretty bad Friday for the yen. Even so, the yen’s early gains ensured that the yen would come out on top this week.

The Australian Dollar

AUD/USD: 1-Hour Forex Chart

The Aussie’s recovery was short-lived, since Aussie-bashing resumed with gusto this week. In fact, the Aussie was the worst-performing currency this week.

The Aussie found trouble early on, thanks to the miss in retail sales. You see, the report showed a 0.1% month-on-month decrease in February when analysts were expecting a 0.3% increase after seeing 0.4% growth in January.

The miss was disappointing enough, but it also likely stoked speculation that the RBA would be a bit more dovish in the upcoming RBA statement. After all, the minutes of the previous RBA meeting did reveal that the RBA was a bit concerned that household debt was outpacing household income, which may lead to weaker consumer spending. And the poor reading for retail sales appeared to confirmed that.

Speaking of the RBA, the RBA reiterated in its April Statement that “Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income.” However, the RBA also pointed to additional concerns pertaining to the labor market by noting that “some indicators of conditions in the labour market have softened recently.”

The RBA’s more worried tone apparently spooked Aussie bulls, since the Aussie got swamped by sellers in the wake of the RBA statement. By the way, if you wanna know more about what the RBA had to say, you can check out Forex Gump’s write-up for that here.

Moving on the Aussie later found support and even began trading higher, as traders shifted their focus on commodities. And commodities were in rally mode at the time, thanks to returning Chinese demand after the Qingming holiday, market analysts say.

Commodities continued to broadly rally for the rest of the week. But unfortunately for the Aussie, iron ore (Australia’s main commodity export) was not one of them, since iron ore slumped on Thursday and then slumped some more on Friday, thanks to the selloff in Chinese steel brought about by signs of weakening demand and rising steel inventories.

In summary, the Aussie got triple kicked by poor data, a not so upbeat RBA, and plunging iron ore price this week.

The U.S. Dollar

USD/JPY: 1-Hour Forex Chart

The Greenback was the second strongest currency of the week. But as you probably observed in the chart above, the Greenback’s had a mixed start, with many Greenback pairs trading sideways for most of the week.

The Greenback did get a bullish infusion across the board on Wednesday, which was apparently a reaction to the March ADP report printing a solid 263K increase in non-farm payrolls (184K expected), which likely triggered speculation that the NFP report was gonna print another impressive reading.

Sadly for Greenback bulls, the Greenback erased its gains later on the same day, thanks (or no thanks) to the minutes of the March FOMC meeting. Forex Gump has a detailed write-up on that, so read it hereif you want more details.

The short of it, though, is that the Fed reinforced that idea that it would only be hiking at a “gradual” pace, which crushed the fragile hearts of interest rate junkies who were hoping for hints that the Fed may hike at a faster pace.

Furthermore, the Fed communicated that it may be shifting its balance sheet policy “later this year.” This was taken by the market to mean as lowering the chance for hiking faster, market analysts say. After all, shrinking the Fed’s balance sheet would have a similar effect to hiking, which may lower the need for further hikes.

Later on Thursday, the Greenback found a bottom and began slowly grinding higher. There were no clear catalysts, but market analysts pointed to cautious optimism that Trump’s meeting with Chinese President Xi Jinping would be a success, or at least not lead to antagonism between the two.

Finally on Friday, the Greenback continued to edge higher against most of its forex rivals, with the exception of the yen and the Loonie, since the two currencies were in demand because of safe-haven flows and higher oil prices respectively, which were both linked to Trump’s missile strike in Syria.

Going back to the Greenback, it later got kicked lower across the board when the NFP report came out with a big miss (98K vs. 175K expected). As usual, Forex Gump has the details on that, so read more about the NFP report here.

Anyhow, the Greenback quickly recovered from the sell-off as market analysts began to point out that the poor reading may be a fluke, since the north-eastern United States suffered from a severe snowstorm during the March period, which may have contributed to the slowdown in jobs growth, particularly in the construction industry. Moreover, wage growth met expectations and the jobless rate unexpectedly improved.

The Greenback got a final bullish infusion after that, which propelled the Greenback to victory against its peers (except the yen). And Greenback bulls can thank New York Fed President William Dudley’s comment that a shift in the Fed’s balance sheet policy would only prompt a “little pause” in the Fed’s path to hiking, since that apparently healed the hearts of interest rate junkies who got hurt by the FOMC minutes and the poor NFP report.

Dudley’s comment also apparently caused odds for a second rate hike by December to improve from 56.6% to 58.9%, according to the CME Group’s FedWatch Tool.

December Rate Hike Odds (Post-Dudley)

The Other Currencies

Okay, here’s how the other currencies fared this week:

The Pound Sterling

GBP/USD: 1-Hour Forex Chart

After several weeks of being a net winner, the pound finally tasted the bitter taste of defeat. And pound bears can sing their praises to (while pound bulls can utter their curses on) a string of mostly disappointing economic reports this week and not-so-hawkish rhetoric from BOE officials.

The pound had a steady start before getting swamped by sellers when the U.K.’s manufacturing PMI for March dipped from 54.6 to 54.2, instead of improving to 55.0 as expected. This marks the third consecutive month that the U.K.’s manufacturing PMI reading has eased. Also, the details revealed that the poor headline reading was due to “the rate of increase in manufacturing production [easing] to its weakest during the current eight-month sequence of expansion.”

The pound steadily bled out after that before getting rushed by sellers a few hours before Tuesday’s London session rolled around. There were no apparent catalysts, but various reasons were being cited including algos and weakening expectations that the BOE may be hiking soon.

However, the most plausible reason seems to be preemptive positioning ahead of the U.K.’s construction PMI, since the reading was a miss (52.2 vs. steady at 52.5 expected), but the pound reacted by jumping higher before trading sideways.

Later, it looked like pound bulls finally found salvation when the U.K.’s services PMI for March came in at 55.0, which is significantly better improvement compared to the expected rise from 53.3 to 53.4. Unfortunately, pound bulls later found themselves staring into the deep, dark abyss once more, since the pound’s gains got capped after BOE MPC member Gertjan Vlieghe said that “Caution is warranted” because “a rate hike that turns out to be premature is a more serious mistake than one that turns out to be somewhat late.”

Moreover, Vlieghe warned that “The consumer slowdown, which initially did not materialise, now appears to be underway.” Vlieghe also added that the slowdown “is more likely to intensify than fade away.”

There were no top-tier catalysts on Thursday, but Vlieghe’s dovish comment apparently sustained bearish pressure on the pound, since the pound traded roughly sideways while showing some weakness against most of its peers.

The embattled pound then got a final bearish kick on Friday, thanks to a poisonous cocktail of disappointing economic reports. As for specifics, Halifax Bank of Scotland’s HPI showed that housing prices stagnated between the months of February and March (+0.2% expected). Year-on-year, house prices printed a 3.8% increase, which is “the lowest rate since May 2013” and signaled that the U.K. housing market may be weakening.

Next, industrial production in the U.K. fell by 0.7% month-on-month in February, which marks the second month of declines, misses the consensus for a 0.2% rise, and is the worst reading in four months to boot. Worse, all industries printed declines in output. Year-on-year, industrial production only increased by 2.8%, which is slower than the previous 3.3% increase, as well as a significant miss from the expected 3.7% increase.

Finally, U.K. trade was also rather disappointing, since the U.K.’s trade deficit widened from £2.98 billion to £3.66 billion in February, thanks to exports falling by 0.7% month-on-month while imports rose by 0.6%.

BOE Guv’nah Mark Carney had a speech shortly after the disappointing economic reports got released. Unfortunately, Carney didn’t really give any support to the pound. Sure, Carney maintained a neutral stance while pointing to a long-term hiking bias by saying that:

“Our central forecast has some modest withdrawal of monetary stimulus over the course of the next few years. There is risk to both sides of that.”

However, Carney also shared the same dovish assessment on consumer spending as Vlieghe, since Carney warned that “[There] are some signs of [strong consumer demand] coming off slowly. That’s what we expect but we’ll monitor it and ensure that we chart the right path.”

The New Zealand Dollar

NZD/USD: 1-Hour Forex Chart

The Kiwi’s price action was a bit messy, with lots of diverging price action to boot, which implies that the Kiwi was vulnerable to opposing currencies.

Still, the Kiwi was the third worst performing currency this week. And looking at the chart above, the Kiwi broadly weakened on Tuesday. In fact, many Kiwi pairs suffered their largest loss on Tuesday. And the Kiwi’s weakness was apparently due to the rather sharp drop in the New Zealand Institute of Economic Research (NZIER) business confidence index (17 vs. 28 previous), since there’s wasn’t really anything else, aside from the risk aversion at the time.

According to the details of the report, “Confidence fell in all sectors surveyed, but sentiment remains positive in the building sector, with a net 31 percent of businesses expecting an improvement in economic conditions over the coming months.”

Weakening confidence in all sectors is obviously a bad thing, but strong confidence in the building sector, while looking good on the surface, is actually a bad thing, since the RBNZ has been raising concerns about a potential housing bubble.

Furthermore, NZIER noted that “Businesses are also finding it easier to raise prices, particularly in the building sector.” This is great news for inflation, but higher prices in the building sector ain’t exactly good, since that would only contribute to a housing bubble.

The Canadian Dollar

USD/CAD: 1-Hour Forex Chart

Oil extended its gains this week (chart for oil is inverted), but instead of kicking butt and taking names, the Loonie ended up mixed and was even a net loser. What’s up with that weirdness, yo?

U.S. WTI crude oil up (CLG6) by 3.38% to $52.13 per barrel for the week

Well, looking at the chart above, the Loonie diverged from oil on Monday and Tuesday, since the Loonie showed significant weakness while oil only dipped a little on news that oil production in Libya was restarting after armed protests led to disruptions during the previous week.

As to why the Loonie showed significant weakness, well, it looks like forex traders were opening preemptive bets ahead of the BOC’s business outlook survey and Canada’s trade report, since reaction to those reports were only minimal, but price action hours before the report were relatively substantial.

With that said, the BOC’s business outlook survey turned out to be upbeat overall, with higher investment and employment intentions. However, the survey also noted the following:

“Firms anticipate little momentum in input and output prices because of still-important competitive pressures. Inflation expectations remain concentrated in the lower half of the Bank’s inflation-control range, although they have edged up marginally.”

In short, business inflation expectations are still subdued, which means both prices and wages likely won’t be lifting off anytime soon. This reinforces the BOC’s pessimistic stance during the March BOC statement when it shrugged off the recent rise in inflation by saying that it “will be temporary.

Moving on to Canada’s trade report, traders were likely betting heavily that Canada’s trade data would be a disappointment. After all, the BOC downplayed January’s strong trade data by saying during the March BOC statement that “exports continue to face the ongoing competitiveness challenges.”

And as it turns out, the BOC and the preemptive Loonie shorts were right, since Canada printed a $972 million deficit in February, thanks to the 2.4% slump in exports. Worse, the slump in exports was widespread, with declines reported in 8 of 11 sections.

Loonie bears who were late to the party tried to weaken the Loonie further after the release of the trade report. However, oil prices were in rally mode at the time, thanks to speculation that U.S. oil inventories would report a draw, market analysts say. As a result, the Loonie began to reluctantly show signs of recovery on some pairs.

The Loonie’s recovery was cut short on Wednesday, however, since U.S. oil inventories actually printed an increase of 1.6 million barrels. No worries, though, since oil bounced back on Thursday, which baffled market analysts because there was no apparent catalyst and made no fundamental sense.

Oil got a final bullish kick on Friday, thanks to Trump’s missile strike on Syria, which is kinda strange, since the target was a military airfield, not an oil production facility, and Syria only produces around 0.04% of total global oil. That doesn’t stop market analysts from coming up with reasons, though, and the most popular narrative is that Trump’s missile barrage created uncertainty in the region, given Syria’s close proximity to major oil producers like Iran, Iraq, and Saudi Arabia.

Oil would later give back some of its gain, though, thanks to a mix of profit-taking, easing uncertainty after Russia and Syria had the self-restraint and prudence not to escalate the situation by blowing up the U.S. ships and starting WW3, as well as disappointment that U.S. oil rigs increased yet again.

The Loonie didn’t follow suit, though, since it got a bullish boost when Canada’s March jobs report printed a nice net increase of 19.4K jobs, beating expectations for a 5.7K increase, as well as topping the previous month’s 15.3K increase.

Still, the Loonie’s weakness on Monday and Tuesday really hurt the Loonie and destroyed its chance for glory, resulting in a mixed overall performance.

The Euro

EUR/USD: 1-Hour Forex Chart

The euro was a net winner this week, but given the euro’s mixed price action, it looks like the euro’s good performance this week was just a fluke. After all, it’s easy to score wins when the Aussie, the pound, the Kiwi, and the Loonie have negative catalysts. Also, many euro pairs were actually trading sideways for most of the week. EUR/USD in particular, was in a rather tight range from Monday to Thursday.

In his speech, Draghi stressed that the ECB ain’t switching its policy bias soon by saying the following (emphasis mine):

“[F]rom today’s standpoint, I do not see cause to deviate from the indications we have been consistently providing.”

“[We] have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage.”

“Before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim over a medium-term horizon, and will remain there even in less supportive monetary policy conditions.”

This refutes the rumor that the ECB may be switching to a hiking bias soon. As a result, the euro got kicked lower. However, the euro rapidly recovered before resuming its mixed price action. And that’s likely because the market has already priced-in a dovish Draghi. After all, the main catalyst for last week’s euro weakness was a Reuters report wherein six unnamed ECB sources said that ECB is “keen to reassure investors that their easy-money policy is far from ending” because the ECB’s message “was way overinterpreted.”

As for the ECB’s meeting minutes, it affirmed Draghi’s dovish stance, since a “very substantial degree of accommodation … was still needed to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term.” Moreover, the minutes revealed that “removing the downward bias on interest rates in the present formulation of the Governing Council’s forward guidance at the current meeting was seen as premature, as there was still considerable uncertainty surrounding the economic outlook and the robustness of inflation convergence.”

The Swiss Franc

USD/CHF: 1-Hour Forex Chart

The Swissy had a mixed performance this week and price action on the Swissy was actually as mixed as that of the euro, even though there were geopolitical risk events this week, including Trump’s missile strike to spank democratically-elected dictator Assad for allegedly gassing beautiful babies.

No clear reason why demand for the Swissy wasn’t stronger and price action was mixed, but I have a sneaking suspicion that the SNB was busy fighting off the safe-haven demand for the Swissy by intervening in the forex market again (*cough* currency manipulator *cough*).

Okay, here’s this week’s scorecard:

Now that you know what the likely drivers were this week, and having taken a look at the forex calendar for next week, which currency do you think will come out on top next week? Vote in the poll below!

Every day, I will present to you my findings and daily commentaries on what recently happened in the economic arena, possible shifts in sentiment, economic events to watch out for, and their effects on currencies.

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